Sunday, June 23, 2024
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Alphabet and Microsoft both delivered strong earnings reports that propelled a rally in technology stocks on Friday. Alphabet’s shares surged 10%, pushing its market value above $2 trillion for the first time, following the announcement of its maiden dividend and a $70 billion stock buyback. Microsoft also gained nearly 2%, adding about $54 billion to its market value.

The strong performance of both companies was attributed to their significant investments in artificial intelligence (AI) infrastructure. AI services played a key role in driving revenue growth, with services like Copilot AI assistant and Gemini chatbot experiencing increased adoption.

At Microsoft, AI services contributed significantly to the 31% jump in revenue at its Azure cloud-computing platform. However, the company noted that near-term AI demand outpaced its capacity, emphasizing the need for further infrastructure spending to meet growing demand.

Similarly, Google reported a 28% increase in cloud revenue, with strong growth in Google Workspace driven by AI-powered features from its large language model Gemini.

These positive results contrasted with Meta Platforms’ warning of higher spending and softer-than-expected growth, which led to a 10% decline in its stock on Thursday.

Analysts praised Microsoft and Google for their leadership in the AI space, noting that they are demonstrating strong results from their investments, unlike Meta, which indicated that the benefits of increased investment may be years away.

The strong performance of Alphabet and Microsoft also boosted Amazon.com’s stock, which rose 3.4% ahead of its earnings report on Tuesday.

Analysts expect continued aggressive spending on AI infrastructure from major cloud companies, viewing it as an essential component of the ongoing “arms race” in the AI market.

Both Microsoft and Alphabet saw numerous price target increases from analysts, reflecting bullish sentiment on their future prospects. Microsoft’s focus on enterprise and its differentiated capabilities in AI were highlighted as factors contributing to its premium valuation compared to Alphabet.

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